A new type of artificial oxygen carriers, the Neo Red Cells (NRCs) have been developed and investigated for oxygen transporting efficiency and safety in experimental animals. Stroma free hemoglobin from outdated human red blood cells together with inositol hexaphosphate as an allosteric effector under sterile, pyrogen free condition were encapsulated in liposomes and then were coated with polyethylene glycol bond to hydrogenated soy phosphatidylethanolamine as a surface modifier to prevent aggregation of NRCs in plasma. The efficiency of the NRCs in tissue oxygenation was studied in rabbits which were made severely anemic by drawing 85% of their blood and immediately replacing it with NRC solution. The animals, all recovered to pre-anemic conditions within 6-8 hr and lived normally until being sacrificed, 6 months after the exchange transfusion. The circulation half-life and tissue distribution of NRCs were studied using radiolabeled NRCs. Within the circulation, the half-life of NRCs was 21 hr and extravascularly, they were distributed mainly in and metabolized by the reticuloendothelial system within 7 days. Our observations suggest that the NRCs prepared and investigated in this study are efficient oxygen carriers without causing serious adverse reactions and can be prepared free from pathogenic micro-organisms by special filtration technique before encapsulation of Hb. Currently, experiments are ongoing to control auto-oxidation of oxyHb to metHb which is higher in NRCs than in native red cells at physiological conditions.